Home Short Sales May Actually Become Shorter

Armen Hareyan's picture

Since suffering home sellers cannot pressure banks to move short sales along, the Treasury Department has stepped in to help move short sales and mortgage modifications onto a faster track.

Based on National Association of Realtor (NAR) statistics, almost 500,000 home sales this year were short sales. This represents a national average of almost 10% of all home sales. In South Florida, California, and Las Vegas, which were hardest hit by the housing crunch, the numbers of short sales are well above that national average.

Considering that the typical short sale never takes less than 3 months, and usually closer to 6, to conclude, anything that expedites the time frame will be appreciated. At the moment, more than 650,000 homeowners are enrolled in the Making Home Affordable program that is designed to take some of the pain out of short sales and home loan modifications.

At the current moment, only about 1,700 homeowners have managed to complete the home modifications sponsored by the Obama Administration. However, Herald-Tribune.com says the Treasury Department expects that figure to move closer to 375,000 before the end of 2009.

The Treasury’s plan to help home sellers to expedite short sales will be appreciated by both sellers and buyers alike; the frustrating wait that goes along with short sales causes almost 80% of these contracts to fail.

What also complicates matters, and prolongs short sale negotiations, is that lenders constantly argue over sales prices, what their share of the proceeds should be, and whether or not to hold the borrower accountable for uncollected debt.

New requirements will alleviate this problem, as well as the time factor. Under the new government rules, lenders will be given only 10 days to approve or disapprove the terms of the short sale. In addition, they must release the borrower from responsibility for any unpaid debt. Realtors will also have more incentive to handle short sales, because under the new rules, lenders can no longer arbitrarily reduce sales commissions,

While banks may hem and haw over short sales, Reuters says they lose far less money than they would if the houses were to go into foreclosure.

Knowing that they will not have debt hanging over them, more owners may opt for short sales because the credit hit from that process usually lasts only 2 years. However, should a bank foreclose on a borrower, his or her credit will be adversely affected for at least 10 years.

The administration’s new efforts to push short sales and loan modifications will include closer analysis of the larger mortgage banks on daily basis. Also, The Washington Post says the government has vowed to publicize and thus, publicly shame banks that are not performing in a manner the Treasury Department deems worthy. The first such culprits are expected to become part of the news by next week. In addition, the bonus payments of $3-4,000 that will be paid to loan servicers for each family served will be withheld until the loan modification made to a family becomes permanent.

While this short sale and mortgage loan modification plan looks great on paper, there is one major short fall: mortgage servicing companies are not required to put this program into effect until April 5, 2010.Until then, we have to hope banks will play fair and act on their best behavior.

Written by Marc Jablon, Realty Associates
marcjablon@yahoo.com / 561 / 213 – 6139
www.marcjablonhomes.com/
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